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More than two billion letters are
sent in the UK each year, but the vast bulk of Royal Mail’s daily
postbag of 62million items is business mail. Ofcom said Royal Mail
could face ‘an inexorable spiral of decline’ unless it was freed from
pricing regulations.

The Ofcom report says ‘the majority’
of people prefer using first-class post, which Royal Mail aims to
deliver the next working day. But the proposals are likely to mean a
massive shift to second-class post, which has a more modest aim of
arriving by the third working day.

The deregulation may also make the
service more attractive to investors, as the Government looks to
privatise the cash-strapped business.

But higher prices will incense many
domestic customers, who are already fed-up with Royal Mail’s habit of
delivering letters as late as lunchtime, regular strikes and unreliable
service.

George Thomson, general secret ary of
the National Federation of Subpostmasters, said there was likely to be a
‘very significant hike in stamp prices’. He added: ‘I don’t
particularly like it, but I don’t see any alternative.’

Typing: Email is replacing the postal service as a form of communication

In its 133-page report, Ofcom, which
took over regulating Royal Mail on October 1, admits there are
‘significant risks’ in allowing Royal Mail to set its own prices.

It added: ‘Most obvious is the risk
that Royal Mail uses this as a means of shying away from efficiency in
favour of simply increasing prices. Customers may expect further large
price rises in the short-term and have little confidence in the future
path of prices.’

Ofcom, whose proposals are subject to
an 11-week public consultation, insisted there was no option but to let
Royal Mail start charging more.

But Ed Richards, Ofcom’s chief
executive, added that it would be ‘absolutely pointless’ for Royal Mail
to ‘hammer’ its customers.

Richard Lloyd, executive director of
the consumer group Which?, said: ‘It is essential these plans don’t
result in a downward spiral, with more people put off sending letters,
leading to even higher prices.’

Yesterday a spokesman for the
Department for Business, which is leading Royal Mail’s privatisation,
said Ofcom’s proposals should protect the universal service while Royal
Mail said it ‘welcomed’ the proposals and that stamp prices will remain
‘affordable’.